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Thursday, January 17, 2013

Portland police pension liability jumps $330 million in two years

Just as the national media focuses on the City of Portland's scandalously unfunded police and firefighter pension and disability "system," the latest official estimate of the unfunded pension liability to public safety officers has shown up on the city's website. The city's actuaries peg the unfunded liability at $2.88 billion as of last June 30. That's up from $2.55 billion on the same date in 2010. In other words, the city's unfunded liability grew by $330 million, or 12.96%, during that two-year period -- a compound growth rate of 6.28% a year.

The new report confirms, rather than uncovers, the crippling debt. Police and fire pensions keep moving in the wrong direction, and will continue to do so for at least another decade -- with virtually no money set aside to cover them. It's all coming out of future property taxes.

We've been using a 6.5% growth rate for the pension debt in our City of Portland debt clock (see left sidebar), and so we aren't too far off. But part of the difficulty in pegging that rate is that the actuaries are constantly changing the assumptions they use. Probably the most important factor in present-valuing future amounts is the discount rate, and the city actuaries just cut theirs from 4.0% to 3.5% a year. They also switched from using an "attained age normal" methodology to an "entry age normal" methodology; if anybody out there can explain that, please help us out in the comments.

In any event, no amount of lipstick can make this particular pig look good. It's irresponsible financial stewardship, in the extreme.

I'm not sure I would divide $2,880,000,000 by 600,000 residents. Better to divide it by the number of property taxpayers, because it's coming out of their hides. At least until they introduce Portland's new "Public Safety Income Tax".

Characteristics
Aggregate
Projected Benefit
Level Percentage for normal cost
Separate Past Service Benefit
The past service benefits for all participants, defined as in the Unit Credit method, are lumped and spread evenly over a fixed period of years. The current service cost is expressed as a percentage of payroll as in the aggregate method.
Entry Age Normal

Also called: Individual Level Cost with Supplemental Liability
Characteristics
Individual
Projected Benefit
Level Payment
Separate Past Service Benefit
The cost of the full benefit for each participant is first spread as a level amount each year, from year of hire to year of retirement. In the years from the start of the plan until the individual retires, this amount is called the normal cost. The cost from hire to the start of the plan is then reassigned to a fixed period of time, generally 10 to 30 years. This becomes the supplemental cost."

I think it will eventually become clear that the politicians that created this mess could've cared less whether or not these commitments could ever possibly be met, they simply got something that they wanted out of it at the time.

Jack, could you tell me how to stop my page from refreshing automatically every so many seconds? I am using Windows 8 and the latest internet explorer. I like the new Windows 8 operating system over my old XP OS, and especially the multitasking new quad pro intel processor. But for some reason haven't been able to find something to slow the refreshing on your page.

Wouldn't a better approach to have placed Portland fire and police into the PERS system, as this puts it out of the hands of the especially financially irresponsible Portland City Hall? At least the PERS system is under some significant review for change.

I certainly bow to experts, but from the days I used to work with actuaries and accountants on these type issues, my recollection is that anything which was referenced as normal cost did a decent job at synching with liabilities as they are incurred. The supplemental liability cost part referenced by k2, if it underlies the Portland numbers, suggests there may be some catch up for insufficient past accounting of accrued retirement liabilities amortized over a future period of time, judgmentally determined.

The only way to fix this pension system is to take it out of the hides of those already retired. The probability that this city council will ever do that is really close to zero. Time for another on-side kick.

This is what happens when the people who negotiate the contract have no skin in the game. The politicians who negotiate with the unions are not personally responsible for what they promise. The worst that could happen to them is to not be re-elected; their pockets aren't affected at all.

If we could go back to the elected and non-elected officials who negotiated these contracts, and the boards or mayors or whatever who approved them contracts, and make them personally responsible for the benefits they approved, that would satisfy my sense of justice just fine.

If this is the work of multiple politicians, there is one primary architect. Randy Leonard. While serving in the State Legislature in the 90's he made some stealthy tweaks to the state collective bargaining laws as well as the workers compensation laws with respect to police and fire. For example, certain illnesses were by state law deemed automatically "work related" for fire fighters thereby folding all manner of additional maladies under the Police and Fire Disability Fund (same as the pension fund) regardless of whether they were, in actuality, caused by their work. A classic example is one former President of the Portland Firefighters Association (PFFA) developed lung cancer. He was a lifelong smoker, but his illness was paid for by Portland's uber rich disability fund owing to the state law Randy had crafted while in the Oregon Legislature.

Knowing how he had tweaked the state law in so many small corners of the ORS, once he became a member of City Council he then went about "suggesting" changes to City policies or certain provisions to the Police and Fire labor contracts to dovetail with his legislative work.

He was a master. Randy spent two and half decades screwing Portland taxpayers. He was so good at it, it will take five decades to dig out from under Randy's stealthy largess.

Road Work

Miles run year to date: 156
At this date last year: 225
Total run in 2014: 401
In 2013: 257
In 2012: 129
In 2011: 113
In 2010: 125
In 2009: 67
In 2008: 28
In 2007: 113
In 2006: 100
In 2005: 149
In 2004: 204
In 2003: 269